Question

1a. The face value of the Treasury Bill is $1000 and it has 40 days to maturity. What is the price of this Treasury Bill if the discount rate is 3%?

		$ 1,080
		$ 1,463
		$ 1300.32
		$ 996.66

1b.

An inflation linked bond (floating rate bond) matures in 2 years and has and a face value of $1,000 and a coupon rate of 10%. Inflation rate over the first year is 1% and the inflation rate over the second year is 3%. What is the amount that the investor will receive at the end of the first (1st) year?

		$100
		$1100
		$101
		$1,111

1c.

Returning back to the question #2, remember that an inflation linked bond (floating-rate bond) matures in 2 years and has a face value of $1,000 and a coupon rate of 10%. Inflation rate over the first year is 1% and inflation rate over the second year is 3%. This time, what is the amount that the investors will receive at the end of the second (2nd) year?

		$ 1,100
		$ 104.03
		$1,144.33
		$ 1,166.99

'

Answer 1

1a

Particulars	Amount
Face value	1,000
Less: discount	(3.33)
Price	996.67

Answer is 996.66

1b

Interest for first year = 1000 * 10% * (1+1%) = 101

1c

Amount received including return of investment = 1000 * (1 + 10%) * (1 + 1%) * (1 + 3%) = 1,144.33